Social Media: Is the Party Over?

Businesses of all kinds and sizes have been viewing social media marketing with excitement and enthusiasm over the last eight to 10 years, but the rose-colored glasses may be getting pretty dark.

Once touted as The Next Big Thing, social media platforms are beginning to show decline across the board. Falling stock prices and lower engagement numbers are making social media marketers wonder whether they bet on the wrong horse.

While social media marketing has benefitted some companies that were quick to jump on the blogging and sharing bandwagon early on, the results are less reliable for later adopters. Not only are marketers frustrated with social media’s lackluster results, but investors are as well. De-valuations of the stock of several major social media companies beg the question, “Is the social media party over?”

Here are three signs that social media could very well be on the decline:

Plummeting Stock Prices

The “social media is dead” headlines have been floating around for years, but they never gained as much traction as they did during this year’s Facebook IPO debacle. The social media giant was originally valued at $100 billion before its IPO in May. It now hovers around $50 billion, with stock prices at about 38 percent lower than they were after the first trading day’s close.

And Facebook isn’t the only struggling company. The social local coupon site Groupon is now down 71 percent from its first day close. Social game creator Zynga is down 67 percent. Social restaurant review company Yelp dipped 21 percent in May, but has recovered slightly.

In part, the plummeting stock prices are a result of supersized expectations from these IPOs, but a lack of leadership and experience is also partly to blame. Several established investors and industry experts say the problems with Facebook and its cohorts are due to focusing on the wrong thing(s). According to the experts, social start-ups and angel investors are focused on getting in, making it big and getting out.

This lack of leadership and business experience can lead a new social company to make the wrong decisions, which can in turn affect profits and stock prices. In contrast, Amazon.com has been able to maintain a relatively steady stock price since its IPO in 1997. Amazon, in particular, has reinvested profits in warehouses, computers and key staff in order to build. Without a long-term view on growth and strong leadership, social companies will likely continue to experience sinking stock prices.

Lack of Real Engagement

Social media is touted as more holistic and cost-effective than other forms of marketing, but there are emerging trends that show that engagement is down. According to a recent Comscore report, 31 percent of Facebook ads are never seen. This number may be going down even further due to the increase in mobile use. Ad engagement rates, as reported by Blog Herald, grew by 41 percent while engagement rates fell 8 percent; in short, marketers and advertisers have to pay more for less effective results.

The declining engagement means that fewer advertisers will be spending money on the platforms, which can end up hurting their stock prices even more.

Increasing Challenges to Being Read and Shared

Why are engagement levels falling? We’ve simply reached a place where consumers are inundated with so much information that it’s taking more and more effort to get found. While early adopters of blogs and social media were able to get the likes, clicks and sales they were looking for, it’s become a much more crowded and noisy market.

In order to be read, you have to address search engine optimization, what type of updates will tweet well, whether your headline will be catchy and clickable enough, which community the content will be published to and which type of readers will be most likely to share your content. And that’s just for starters. It’s a lot to consider, especially when the payoff just isn’t there.

All the signs for social media decline are there – so what’s the solution? Time will tell, but it appears that targeted, direct response “old school” advertising may, in a great number of instances, be the best option. Direct response advertising has been proven to deliver a clear marketing message, allowing marketers to track consumer’s actions, reach targeted buyers efficiently and yield a measurable ROI.

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Peter Koeppel is Founder and President of Koeppel Direct, a leader in direct response television, online, print and radio media buying, marketing and campaign management. With a Wharton MBA and over 25 years of marketing and advertising experience, Peter has helped Fortune 500 companies; small businesses and entrepreneurs develop direct marketing campaigns to increase profits.

Peter started Koeppel Direct in 1995 and has built it into one of the leading direct response media-buying firms in the U.S. Follow me on Twitter.

Reader Comments.

oh please

Posted by ItsDane | 3:58 pm on August 29, 2012.

I am not a big fan of the social media hype either, but the social media sales engine has not been around for 8-10 years as this article claims. All the companies mentioned don’t fall into this time range. BTW a Facebook valuation at 50 billion dollars is still pretty impressive.

Social media is not dead, but like search, its getting harder to achieve ROI. Misuse is one issue. So and so suggested you like such and such? Buy facebook likes by the 1000 for 10 each (maybe that is where all those fake accounts are coming from), spam filled news streams. For some, the shiny new toy is now dull tarnished. Yet we know that is where people spend their time more and more. Ad funds always follow eyeballs/attention eventually. Mobile is going to be the next big opportunity as usage is huge and current spend is miniscule, creating the largest discrepancy in advertising between eyeballs/attention and spend. You can bet that social usage is driving mobile ad inventory. Social media marketing now requires a deliberate, well-executed strategy integrated with other online/offline channels, offering differentiating, entertaining, high quality content, positioned to the right audience at the right time. It can and is being done successfully. As for the stock price as a proxy for the health of the social media market, I say that it is a better proxy for wall street’s inability to provide an accurate valuation for a business model they don’t understand, especially in an industry where MySpace dominated before anyone heard of facebook, then in the span of half a decade, the roles completely reversed. Not like a typical offline business with predictable business cycles spanning decades.

Social media is most effective as a distribution channel for content, not for advertising or satisying demand like search. It is powering an increasing part of the distribution mix. That is not, however, how it is being monetized. It is being monetized like a publisher, instead like a hub for content distribution.
LinkedIn is smarter. Their primary value is in the easy connection to a stranger, and thats how they get paid…you have to pay to send an email. If facebook and twitter put a toll on outbound links for heavy users the way LinkedIn puts a toll on email, it would be a very different story.